Encouraged by his accomplishment over setting an inflation target for the country, Reserve Bank of India (RBI) Governor Raghuram Rajan is again pitching for a free floating currency as a part of his efforts to reform country's financial system.
In April, Rajan said the central bank is contemplating full rupee convertibility in a few years though it seems unlikely during his current tenure.
"My hope is that we will get to full capital account convertibility in a short number of years," Rajan told IBN Live on 10 April.
Rupee convertibility appears to be Rajan's "next big ambitious goal," Reuters quoted a policymaker, who has knowledge of Rajan's views, as saying.
The governor is laying ground for that to happen in the coming years, which is in line with government's plans to boost India's weight on the global arena.
"It is the right time to take baby steps to move towards capital account convertibility," said one senior finance ministry official.
For the first time, the central bank permitted companies to raise rupee debt in April. As the debt is denominated in rupees, there is no chance of rupee outflow or inflow.
This initial step towards opening up the rupee will allow the domestic companies to tap a wide range of investors, significantly reducing borrowing costs and enabling the rupee to acquire more importance in the international markets.
"We have already achieved about 30-40 percent of the capital account convertibility. It is not advisable to have a full capital account convertibility in one go," the finance ministry official said.
Some finance ministry officials and policymakers view the currency convertibility as a "logical next step," following the country's move to set an inflation target in March.
"We are a long way from achieving full capital account convertibility. First the macro fundamentals like inflation, and the fiscal deficit should be fixed -- otherwise it will be like putting the cart before the horse," said A Prasanna, economist at ICICI Securities Primary Dealership.
